The deficit in the first six months has already ballooned to P119.72 billion, a little over P10 billion shy of the full year target of P130 billion, and there is widespread expectations that the Cabinet, which meets today, will revise the target.
The source, who declined to be named, said the inter-government agency, the Development Budget Coordination Committee (DBCC), recommended the new figure.
The source said the proposed target factored in new measures to improve revenue collection as well as cuts in expenditure.
Last week, another government official, who also wished to remain anonymous, said the deficit could balloon to around P163 billion for the full year unless deep spending cuts were made in the second half.
However, some analysts believe if the deficit trend in the first half continues, the shortfall could grow close to P200 billion by the end of the year.
The official said the DBCC wants the deficit target kept below the fiscal gap of P147.02 billion in 2001 in line with the government’s medium-term plan to try to achieve a balanced budget by 2006.
Weak revenue collection, mainly due to the Bureau of Internal Revenue’s failure to meet its tax targets, has been blamed for the deficit blowout.
The government has been steadfastly saying in recent months that it can keep to the 130 billion pesos target through a mixture of spending austerity and additional revenue income in the second half.
However, growing expectations for a hike in the deficit target have put pressure on the exchange rate, interest rates, and equities in the past two trading days.
At the close of local trade yesterday the peso had fallen to 51.53 to the dollar, its lowest closing level since Jan. 9 this year.
Central bank governor Rafael Buenaventura told reporters yesterday the peso’s fall was more a reflection of weakness in the currencies of neighboring countries.
"This was more a regional concern but locals have been confusing it with the deficit...it is too early (to say) at this stage and the impact will depend on the size of the excess (deficit for the full year)," he said.
Yields for government debt paper spiked a further 25 basis points after a sharp rise last Friday, reflecting fears in the market that Treasury may have to increase its borrowings program, putting upward pressure on rates.
Stocks were also hit with the main index ending down 11.39 points, or 1.01 percent, at 1,118.03, just a few points shy of the year-low of 1,111.44 points touched during the session.
An uptick in interest rates stemming from a higher deficit could undermine efforts to help kick-start the still-weak economy and this played on investor sentiment, equities traders said.